AT&T Shifts Network Spending From Hardware to Software

By Scott Moritz -
Sep 24, 2013

AT&T Inc. (T), the largest U.S. phone
company, plans to shift its spending away from equipment
purchases and toward software, aiming to improve network
performance and handle more traffic while keeping costs down.

AT&T introduced a supplier overhaul yesterday called Domain
2.0, a long-term plan designed to trim hardware costs over the
next five years and coax vendors into developing broader
software capabilities. The shift will create a “downward bias”
to capital spending, according to a statement.

The effort relies on so-called virtualization, which uses
software to allow hardware to handle more tasks at once. By
extending to AT&T’s entire network, the move represents the most
ambitious effort of its kind, said Iain Gillott, an analyst at
IGR Inc. in Austin, Texas. Until now, carriers have only dabbled
in virtualization, he said.

“The difference is like if Mercedes said they were
building a hybrid car versus Mercedes saying all their cars will
be hybrids in five years,” Gillott said.

AT&T, one of the biggest U.S. companies in terms of
equipment expenditures, is on track to spend $21 billion on
capital improvements this year. The carrier has been reassessing
its spending in an effort to better manage burgeoning traffic,
said AT&T Senior Executive Vice President John Donovan. Sales of
smartphones and tablets have led to a flood of data and video
over AT&T’s pipes.

In streamlining its purchasing, AT&T also has pared down
its list of suppliers, which include Alcatel-Lucent and Cisco
Systems Inc. (CSCO) The first phase of supplier restructuring, Domain
1.0, reduced the field of suppliers from more than 100 to about
20, Gillott said.

While no vendors will be excluded from this next stage of
purchasing, some will fare better than others, Donavan said.

“Readiness varies across our suppliers, and there will be
awards for those that are further ahead,” he said.